Issue Date
March 20, 2008
Audit Report Number
2008-FW-1006
TO: Paula O. Blunt
General Deputy Assistant Secretary for Public and Indian Housing, P
Justin R. Ormsby
Director, Office of Public and Indian Housing, 6APH
FROM: Gerald R. Kirkland
Regional Inspector General for Audit, Fort Worth Region, 6AGA
SUBJECT: Dallas Housing Authority, Dallas, Texas, Management Failed to Implement
Internal Controls over Its Housing Choice Voucher Program
HIGHLIGHTS
What We Audited and Why
As part of our strategic plan objective to assist the U. S. Department of
Housing and Urban Development’s (HUD) efforts to reduce rental
assistance overpayments, we audited the Dallas Housing Authority’s
(Authority) financial management of its Housing Choice Voucher program
(voucher program). Our objective was to determine whether the Authority
had the necessary financial controls in place to operate its voucher
program in an efficient, effective, and economical manner.
What We Found
Contrary to requirements, Authority management failed to implement
internal controls over the financial management of its voucher program
and did not exercise sound management practices. Although this has been
an ongoing weakness, Authority management did not take substantive
measures to ensure that basic controls were established. As a result, the
Authority’s financial data were unreliable, its fund balances were
incorrect, and it could not assure HUD that it spent program funds in
accordance with its annual contributions contract or federal regulations.
Further, the Authority certified to HUD that it expended about $32.4
million less in program funds than it received in 2005 and 2006.
What We Recommend
We recommend that the Director of the Fort Worth Office of Public and
Indian Housing require the Authority to support or repay more than $32.4
million, void and properly reclassify $648,530 in outstanding checks, and
implement effective internal controls over the financial operations of its
voucher program. In addition, we recommend that the Assistant Secretary
for Public and Indian Housing take appropriate administrative sanctions,
up to and including issuing a notice of default in accordance with section
15 of the annual contributions contract for the Rental Certificate and
Rental Voucher Programs to ensure that the Authority complies with
requirements.
For each recommendation without a management decision, please respond
and provide status reports in accordance with HUD Handbook 2000.06,
REV-3. Please furnish us copies of any correspondence or directives
issued because of the audit.
Auditee’s Response
We provided the draft report to Authority officials on February 8, 2008.
We held an exit conference with Authority and HUD officials on
February 25, 2008. The Authority provided written comments to our draft
report on March 3, 2008.
The Authority generally acknowledged the weaknesses of its financial
management controls during the audit period. The Authority’s response
also included positive steps taken to strengthen its overall internal
controls. The Authority’s response along with our evaluation of the
response can be found in appendix B of this report. Due to the volume of
supporting documentation provided, we did not include the attachments
submitted with the response. The attachments are available for review
upon request.
2
TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding: Authority Management Failed to Implement Internal Controls to 5
Ensure That It Properly Managed Program Funds
Scope and Methodology 18
Appendixes
A. Schedule of Questioned Costs and Funds to be Put to Better Use 19
B. Auditee Comments and OIG’s Evaluation 20
3
BACKGROUND AND OBJECTIVES
In 1938, the Dallas City Council established the Dallas Housing Authority (Authority) to
provide housing to low-income persons. A five-member board of commissioners
(board) 1 governs the Authority. The board appoints a president and chief executive
officer to administer the operations of the Authority. The Authority’s main office is
located at 3939 North Hampton Road, Dallas, Texas.
The Authority administers the U. S. Department of Housing and Urban Development’s
(HUD) Housing Choice Voucher program (voucher program). Under the voucher
program, HUD pays rental subsidies so that eligible families can afford decent, safe, and
sanitary housing. The Authority administers the voucher program pursuant to an annual
contributions contract with HUD. Under the contract, HUD agrees to provide financial
assistance to the Authority, and the Authority agrees to comply with HUD requirements
in administering the voucher program. The Authority is responsible for establishing
internal controls to plan, organize, direct, and control program operations including
systems for measuring, reporting, and monitoring fiscal performance.
The Authority administers more than 17,000 vouchers. In 2005 and 2006, HUD provided
the Authority with more than $286 million in funds for housing assistance payments for
its voucher program and more than $18.5 million to administer the voucher program.
This is the second of three planned reports on the Authority’s voucher program. In the
first audit, we reported that the Authority mismanaged its portable vouchers; collected
$3.7 million from HUD based on inaccurate, unreliable, and altered records; and violated
HUD requirements. 2
Our audit objective for this audit was to determine whether the Authority had the
necessary financial controls in place to operate its voucher program in an efficient,
effective, and economical manner.
1
The mayor of Dallas appoints board members.
2
Audit report number 2007-FW-1003, “The Dallas Housing Authority, Dallas, Texas, Mismanaged Its
Portable Vouchers.” issued on December 5, 2007.
4
RESULTS OF AUDIT
Finding: Authority Management Failed to Implement Internal
Controls to Ensure That It Properly Managed Program
Funds
Contrary to the terms of its annual contributions contract and applicable federal
regulations, Authority management failed to implement internal controls over the
financial management of its voucher program and did not exercise sound management
practices. Although this has been an ongoing weakness, Authority management did not
take any substantive measures to ensure that even basic controls were established. As a
result, the Authority’s financial data were unreliable, its fund balances were incorrect,
and Authority management could not assure HUD that it spent program funds in
accordance with its annual contributions contract or federal regulations. Further, the
Authority certified to HUD that it expended about $32.4 million less in program funds
than it received in 2005 and 2006.
Management Failed to
Implement Basic Internal
Controls
Contrary to requirements, 3 the Authority failed to implement basic
controls to effectively, efficiently, and economically manage and operate
its voucher program. Internal controls should be an integral part of the
Authority’s management of its voucher program and should be used to
direct, monitor, and measure its resources. Its controls should also provide
some assurance that its resources are protected from fraud and abuse.
Authority management failed to implement basic internal controls 4 over
the financial management of its voucher program and did not exercise
sound management practices. The Authority did not (1) have written
policies and procedures, (2) maintain an adjusted trial balance showing the
reconciliation of the year-end general ledger to the financial statements,
(3) establish subsidiary general ledger accounts, (4) effectively monitor its
budgeted expenses and revenues, (5) post transactions to or reconcile
general ledger and bank accounts in a timely manner, or (6) reconcile or
validate the amounts posted during automated transfer of data between
3
Annual contributions contract and 24 CFR (Code of Federal Regulations) 85.20(b)(3).
4
According to the Committee of Sponsoring Organizations of the Treadway Commission, internal
control is broadly defined as a process, affected by an organization’s people and information
technology systems, designed to help the organization accomplish specific goals or objectives.
5
accounting systems. Further, many of the Authority’s voucher program
accounting staff who performed day-to-day accounting functions did not
have formal accounting training. Also, management did not adequately
segregate duties, and there was no evidence that approvals or
authorizations were required or consistently performed.
As a result, the Authority’s financial data were unreliable, its fund
balances were incorrect, and Authority management could not assure
HUD that it spent program funds in accordance with its annual
contributions contract or federal regulations. This condition caused the
Authority to submit inaccurate cost information to HUD and could result
in reduced program funding and perhaps deprive eligible program
recipients of housing assistance. 5
The Authority Did Not Have
Written Policies and
Procedures
Authority management did not design and implement written policies and
procedures to ensure accurate, properly authorized, supported, and
consistent processing of transactions. Written policies and procedures are
a fundamental element of internal control. They help to ensure that
management directives are carried out and necessary actions are taken to
address risks to achievement of the entity’s objectives. Control activities
should occur throughout the organization, at all levels and in all functions,
and should include a range of activities including approvals,
authorizations, verifications, and reconciliations. Authority management
did not establish and implement written policies and procedures for any of
the basic controls.
The Authority Did Not Have an
Adjusted Trial Balance
The Authority did not provide an adjusted trial balance or other document 6
showing the reconciliation of its year-end general ledger balances to its
financial statements for fiscal year 2005. According to the Authority and
its independent auditor, 7 the Authority provided an adjusted trial balance
for its 2005 financial statement audit. However, the Authority did not
provide or reproduce the document for this audit. An adjusted trial
5
Notice PIH (Public and Indian Housing) 2007-14.
6
According to the Authority, its software produced a reporting tree that served the same purpose as an
adjusted trial balance.
7
KPMG International.
6
balance reflects how management adjusted the balances in the general
ledger accounts to arrive at the amounts reported in the audited financial
statements. Without an adjusted trial balance or other document showing
the connection between the general ledger and the financial statements, it
was unknown whether management made the necessary adjusting entries
to the general ledger balances to ensure that it supported the financial
statements.
The Authority Did Not
Maintain Subsidiary Account
Ledgers
The Authority did not maintain subsidiary account ledgers supporting
entries into its general ledger. A general ledger should contain the
financial statement accounts of a business and reflect a summary of all the
transactions occurring within an entity. Conversely, subsidiary ledgers
should show the details underlying the balance of an account in the
general ledger. However, contrary to this concept, the Authority posted
both summary and detail entries directly to its general ledger. In addition,
for the summary entries entered into its general ledger, the Authority did
not maintain subsidiary ledgers supporting those entries. This
methodology for posting transactions to the general ledger resulted in a
13,000 page document that was not useful as a management tool.
For example, the Authority posted approximately 10,000 vendor
payments 8 per month using at least 69 different general ledger expense
accounts. It posted summary level information for the bulk of the
payments but entered detailed information for thousands of voided checks
directly into the general ledger. The voided checks appeared a number of
times in the general ledger, as the Authority needed to reverse its entries in
cash and expense accounts. Posting this level of detail directly into so
many general ledger accounts made reviewing, analyzing, and reconciling
transactions extremely cumbersome. The Authority should use its general
ledger as a primary tool to properly manage and oversee its program.
The Authority Did Not
Effectively Monitor Its
Budgeted Expenses and
Revenues
The Authority did not provide documentation to support that it monitored
its budgeted or actual expenses. The primary purpose of budgeting is to
establish objectives and allocate available resources for individual
8
Housing assistance and utility reimbursement payments to landlords and clients.
7
programs and the Authority as a whole. HUD required 9 the Authority to
compare budgeted to actual amounts to analyze its performance. Planning
and monitoring budgeted and actual revenues and expenses and analyzing
differences should be an integral part of the Authority’s business
operations.
However, the Authority did not have a budget process in place to
determine whether its actual revenues and expenses were within budgeted
amounts. In addition, it was unable to identify and address why its
administrative costs increased by 37 10 percent from 2005 to 2006. Thus,
management operated its voucher program without fundamental financial
oversight and failed to identify and correct a number of errors in its
accounting records that are discussed in this finding.
The Authority Did Not Post to
or Reconcile Accounts in a
Timely Manner
The Authority did not routinely reconcile its general ledger or bank
accounts in a timely manner. In a double-entry accounting system, every
transaction is recorded with equal debits and credits so that the equality of
the debits and credits may be tested as proof of accurate recording.
Periodic reconciliations of the general ledger accounts ensure that equal
postings were made. If differences in the balances occur, periodic
reconciliation allows for timely correction of errors or omissions.
Similarly, timely reconciliation of the bank accounts serves to detect and
correct errors. The Authority did not reconcile its accounts, post
transactions, or void outstanding checks in a timely manner. In addition,
the general ledger contained duplicate and unexplained accounts.
The Authority Did Not Post or Reconcile to Its General Ledger in a
Timely Manner
The Authority did not routinely reconcile its general ledger accounts and
continued to make entries after year-end. For example, it did not record
January 2005 bank deposits in its general ledger cash account until
January 2006. In total, it did not record more than $45 million in
transactions to this account until after year-end. As a result, it had
inaccurate year-end balances in its general ledger accounts. If the
Authority had routinely reconciled its general ledger, it should have
identified and corrected these errors and omissions.
9
24 CFR 85.20(b)(4).
10
The Authority’s administrative expenses increased from $9,066,681 in 2005 to $12,448,033 in 2006.
8
The Authority Did Not Perform Bank Reconciliations in a Timely
Manner
The Authority did not perform bank reconciliations in a timely manner,
sometimes up to one year late. For example, a reconciliation of a January
2006 bank statement was dated January 4, 2007. Reconciling bank
statements is an important element of fiscal responsibility that helps to
ensure that the general ledger reflects accurate and complete financial
information. The Authority maintained three bank accounts for its
voucher program: a transfer account that received program funds from
HUD, a direct deposit account used for electronic vendor payments, and a
checking account used for traditional vendor payments.
Management neglected to establish written policies or provide training for
employees to follow in performing the bank reconciliations. As a result,
the reconciliations appeared to have been performed on a trial and error
basis in many instances. For some monthly bank statements, employees
performed multiple reconciliations with different results and no indication
of the correct one. For example, the Authority had 11 reconciliations of
the June 2006 bank account, dated between November 2006 and January
2007, with no indication of which, if any, was correct.
As another example of this poor control over its assets, the Authority’s
bank records showed that a check drawn on the Dallas Independent School
District’s account cleared through the Authority’s checking account in
January 2007. The bank did not identify the error, and the payment was
not discovered until December 2007, when the Authority reconciled its
January 2007 bank statement. The Authority must routinely reconcile its
bank statements for all accounts on a timely basis to ensure that its records
accurately reflect cash balances and that transactions posted to its accounts
are valid. If management had properly reviewed and approved bank
reconciliations it should have known these problems existed and corrected
them.
Management Did Not Properly Account For Outstanding Checks
Management did not properly account for outstanding checks, resulting in
inaccurate general ledger account balances. In January 2007, it had 6,087
outstanding checks on its voucher program checking account totaling
$906,553. Of this amount 5,186 checks totaling $648,530 were
outstanding more than 60 days. It issued these checks between January
2004 and December 2006. 11 The checks state that they are “void after 60
days.” As a prudent business practice, the Authority should void
outstanding checks if they are not presented for payment within a
reasonable period. It should reclassify the outstanding obligations in
11
One check was dated January 2002.
9
accordance with generally accepted accounting principles and state law;
thus, putting the $648,530 to better use.
The General Ledger Contained Unexplained and Duplicate Accounts
The general ledger contained the following unexplained accounts that had
significant balances:
Table 1: Unexplained accounts
General ledger Account
Account number account description balance
851-281000 Unreserved Surplus $704,710,574
851-284000 CUM HUD 698,693,851
The Authority’s finance staff could not explain what these accounts
represented. The Authority is required to report accurate and valid data to
HUD. In its response, the Authority stated the accounts represented an
antiquated method of accounting for the reserves.
The Authority’s general ledger also had a number of duplicate accounts.
As shown below, the Authority had five different accounts in the general
ledger for the same purpose:
Account number General ledger account description
851-112938 Port Receivable
851-112985 Rec. – Port Vouchers
851-112986 Portable Receivable
851-112987 Portable Rec’able
851-112988 AR-Port Vouchers
Of these five accounts, the Authority only used two consistently during the
audit period. The other three accounts appeared to be unnecessary. The
Authority acknowledged that it had duplicate accounts within its general
ledger. This condition occurred because staff members in two different
departments created new accounts rather than using existing accounts.
The ability to create new accounts should be limited to a few key
personnel with required supervisory approval. This practice would not
only reduce the likelihood of duplicate accounts but also should improve
the ability to reconcile balances, reduce the likelihood of errors, and
reduce the opportunity to create fictitious vendor accounts. According to
the Authority, it recently reduced the number of accounts from 62,000 to
about 12,000 to eliminate the unnecessary accounts. The Authority needs
to establish controls 12 over creating and maintaining general ledger
accounts, including supervisory approval and documentation of changes.
12
The controls should include written policies and procedures relating to its chart of accounts.
10
Data Transferred between
Systems Were Unreliable and
Unverified
The Authority’s method of transferring data between its two software
systems resulted in unreliable and inaccurate data. The Authority used
two different software systems to record transactions, maintain its general
ledger, and compile its financial reports. It had a number of errors and
omissions when it transferred data between systems, including inaccurate
and unverified postings of expenses, improperly recorded checks, and
“bad date checks.” Although management knew of ongoing problems
with the data transfers, it did not take appropriate actions to resolve the
underlying issues or ensure the validity of the data.
Postings of Program Expenses Were Inaccurate and Unverified
The Authority posted program expenses to the general ledger without
ensuring the validity or accuracy of the data, as shown in table 3.
Table 2: January 2006 payments from direct deposit account
General ledger
account description Debits Credits
DHA Sec 8 DD $7,433,506
S8 HAP Vendor checks 01/06 237,089
S8 HAP Vendor checks 01/06 $7,543,181
13
Unknown 127,422
The debit of $237,089 and the credit of $7,543,181 were both posted to the
general ledger automatically during the data transfer. However, Authority
finance staff did not validate the amounts or make any determination
regarding their accuracy. The Authority posted more than $120 million to
its general ledger in this manner in 2006. The Authority’s finance staff
should perform some level of independent verification of financial
transactions and the propriety of data in general. Since the Authority was
aware of problems with the data transfers, it should have taken additional
steps to ensure that amounts were accurate.
Checks Were Improperly Recorded
On more than one occasion, the Authority had discrepancies between
checks recorded and checks issued that it could not explain. Since it
prepared checks as part of an automated process and used preprinted
check stock, these discrepancies should not have occurred. For example,
13
The Authority’s general ledger did not have an account description for this transaction.
11
• In August 2006, the Authority recorded check number 451702 for
$6,039 to one vendor. However, the check was issued to a different
vendor in the amount of $58,216. Although the check cleared the
Authority’s checking account in the amount of $58,216, the general
ledger continued to show the inaccurate amount and vendor.
• In October 2006, the Authority recorded a series of 10 checks to 10
vendors totaling $6,331. However, it issued the checks to 10 different
vendors for $8,310. When vendors presented the checks for payment,
the Authority’s bank did not honor them. 14 However, the Authority
did not void the 10 checks in its general ledger until August 2007,
almost a year later.
The Authority could not provide an explanation for these errors.
However, Authority staff indicated that these types of errors were not
uncommon. These errors, combined with other errors discussed in this
report, further distorted the Authority’s financial records for fiscal years
2005 and 2006. As previously discussed, if the Authority had reconciled
its accounts in a timely manner it should have discovered these errors.
The Authority should also determine how these errors occurred and
implement necessary controls to prevent their recurrence.
“Bad Date Check” Errors Occurred
The data transfers between software systems caused other errors in the
general ledger, referred to by the Authority as “bad date checks.” The
Authority’s bank reconciliations showed a number of adjusting entries
with this description. Examples include the following:
• Checks totaling $7,779 in January 2006 were correctly recorded in one
system, but during the data transfer, the check dates changed, and the
amounts were not recorded in the general ledger, resulting in
understated expenses in the general ledger. The Authority did not
correct this error until December 2006.
• A series of voided checks posted in one system in March 2005 did not
post to the general ledger during the data transfer. Thus, the March
2005 general ledger was overstated by at least $5,200. In March 2006,
the voided checks appeared in the general ledger without explanation.
• Voided checks in August 2005 totaling $26,829 did not post to the
general ledger during the data transfer because the check dates were
changed to May 2008 during this process. Thus, the Authority’s
voucher program expenses for August 2005 were overstated. The
Authority did not correct the error until December 2006.
14
When the Authority prepared checks, it uploaded a file to the bank listing the individual checks and
amounts. For the bank to honor the check, it must match the list sent to the bank. Since the file
provided for these checks contained different amounts, the bank rejected them. However, this process
did not prevent the bank from honoring the $58,216 in August 2006.
12
Since thousands of similar entries were made annually in the general
ledger, it was unknown how many of these types of errors occurred during
the data transfers. Further, since the Authority did not reconcile or
validate the amounts posted during this process, it could not provide
assurance that these types of errors were not widespread and undetected.
The Authority must implement controls to ensure the accuracy and
reliability of its data transfers.
Training Staff, Segregation of
Duties, and Supervisory
Approvals Were Lacking
In addition to having no written policies and procedures, many of the
Authority’s voucher program accounting staff who performed day-to-day
accounting functions did not have formal accounting training. Also,
management did not adequately segregate some duties. Further, there was
no evidence that supervisory approvals or authorizations were required or
consistently performed. For example, one staff member with no formal
training in accounting received direct deposit payment data from another
department, made unsupervised adjustments to it, and transmitted the
adjusted data to the bank for processing electronic payments to vendors.
In addition, the Authority assigned the same employee the task of
reconciling the bank statements for the direct deposit account. The
Authority typically made more than $7 million in housing assistance
payments through this account each month. It did not maintain
supervisory review or approval of these activities, such as including
initials on the adjusted data or bank reconciliations. This lack of training
and supervision, coupled with failure to observe the basic safeguard of
segregation of duties, exposed the Authority to greater risk of error and
misappropriation of assets.
13
Inaccurate Reporting of
Expenses to HUD Could Reduce
Program Funding
Because of the deficiencies addressed throughout the finding, the
Authority did not maintain accurate or consistent information on the funds
received from HUD and funds it expended to house voucher program
families. Its inaccurate records could result in reduced funding and
perhaps deprive eligible program recipients of housing assistance. HUD
collects leasing and cost information from the Authority through its
Voucher Management System (VMS) and uses the data to determine
future funding for the Authority. For fiscal years 2005 and 2006, the
Authority recorded different amounts in its records than it certified to
HUD via VMS as shown in table 3.
Table 3: Amounts in Authority’s records versus amounts reported to HUD 15
Fiscal year Fiscal year
Description 2005 2006 Totals
Program revenue in the $140,108,275
16
Authority’s general ledger $134,117,534 $274,225,809
Program expenses in the
Authority’s general ledger 132,387,195 117,207,745 249,594,940
Program expenses reported in
VMS and certified by the
Authority as correct 131,459,710 122,768,945 254,228,655
Program funds provided by HUD 141,216,484 17 145,452,957 286,669,441
Unsupported 18 $9,756,774 $22,684,012 $32,440,786
Although the Authority reported different amounts for the voucher
program expenses it incurred, it could provide no assurance that any of the
amounts were correct. The only verifiable amount in table 3 was the
program funding provided by HUD. According to the Authority, it
recorded its program funds as unearned revenues until it expended the
funds, at which time it recorded the funds as revenues. Thus, cumulative
revenue and expense balances should equal.
The Authority reported $254 million in expenses in VMS while it received
$286 million in voucher program funds from HUD in 2005 and 2006.
15
The amounts do not include administrative fees.
16
This number includes an additional $20,403,581 the Authority posted to its general ledger revenue
account in December 2006.
17
This includes $3,789,252 received from HUD for portability tenants in 2005. The Authority did not
agree that the amount should be included.
18
Unsupported amounts represent the difference between housing assistance payment expenses reported
in VMS and housing assistance payments provided by HUD.
14
HUD required the Authority to maintain an undesignated fund balance
account in accordance with generally accepted accounting principles 19 to
account for the $32.4 million difference. The Authority needs to ensure
that its undesignated fund balance includes the $32.4 million difference
and that it expends and accounts for those funds in accordance with HUD
requirements.
HUD required the Authority to report leasing and financial data via VMS
accurately and in a timely manner. 20 Since March 2007, HUD has
attempted to verify the Authority’s 2006 VMS submission. As of
January 9, 2008, the verification had not been completed because the
Authority could not support its expenses.
Further, for April through June 2007, the Authority reported voucher
program expenses in VMS of about $18.8 million. Other information
provided by the Authority’s information services department showed that
the Authority’s voucher program expenses for April through June 2007
totaled more than $31.9 million. 21 In comparison, the Authority reported
housing assistance payment expenses of more than $32.6 million and
$32.5 million in VMS for the same three months in 2005 and 2006,
respectively. Since August 9, 2007, HUD has repeatedly contacted the
Authority in writing, notifying it that the VMS submitted amount of $18.8
million did not appear accurate and that its 2008 program funding could be
adversely affected if it does not correct the amount. 22 Although the
Authority’s management was aware of HUD’s concerns, as of January 17,
2008, it had not adjusted its VMS submission for April through June 2007.
The Authority’s management was responsible for establishing and
maintaining effective internal control to ensure reliable and properly
recorded financial information. Management’s failure to implement these
controls could jeopardize its future program funding, hindering its ability
to meet its mission to provide affordable housing to low-income families.
Lack of Internal Controls Has
Been an Ongoing Weakness
The Authority has repeatedly been informed of its internal control
weaknesses. Its independent audit reports 23 for fiscal years 2004 and 2005
contained the following finding:
19
Notice PIH 2006-03.
20
ibid.
21
While these amounts were unverified, the discrepancy demonstrated that the Authority did not provide
consistent information about its voucher program expenses.
22
Notice PIH 2007-14.
23
Office of Management and Budget Circular A-133 audits performed by KPMG International.
15
“The system of internal control as designed and maintained by DHA
[the Authority] appears to be inadequate and not operating effectively
to reasonably ensure DHA’s compliance with Federal laws,
regulations, and program compliance requirements.”
In addition, the Authority received a number of reviews and
correspondence from HUD citing systemic problems related to its voucher
program. Despite the Authority’s having been informed of its lack of
internal controls, management has not corrected the weaknesses. This was
further reported in an Office of Inspector General (OIG) report issued in
December 2007 that identified questionable financial accounting and
reporting regarding its portable vouchers.
Conclusion
By failing to establish a control environment that safeguarded assets and
ensured that the voucher program operated effectively and within budget,
the Authority created an environment of haphazard recordkeeping and
poor stewardship of the funds entrusted to it. Management neglected to
establish basic controls over financial reporting, including providing staff
with the written policies and procedures and guidance necessary to
perform their duties. It also failed to
• Maintain an adjusted trial balance tying is records to its financial
statements,
• Maintain subsidiary ledgers,
• Effectively monitor its budgeted expenses and revenues,
• Post to and reconcile its general ledger and bank accounts in a
timely manner, and
• Reconcile or validate the amounts posted during automated data
transfers.
Many of the Authority’s voucher program accounting staff who performed
day-to-day accounting functions did not have formal accounting training
and management failed to adequately segregate duties. It could not
provide evidence that supervisory approvals or authorizations were
required or consistently performed.
The Authority has repeatedly disregarded findings of control weaknesses,
which allowed the problems to fester, resulting in unreliable financial
information and the possibility of reduced program funding for 2008. Due
to the Authority mismanaging its program and neglecting to implement
corrective action, it is in violation of the terms and conditions of its annual
contributions contract and application regulations.
16
Recommendations
We recommend that the Director of the Fort Worth Office of Public and
Indian Housing
1A. Require the Authority to support or repay to its undesignated fund
balance account the difference between expenditures reported and
funding received of $32,440,786 for fiscal years 2005 and 2006.
1B. Require the Authority to void and properly reclassify $648,530 in
outstanding checks, thus putting the funds to better use.
1C. Require the Authority to implement adequate internal controls over
its financial management of its voucher program. At a minimum, the
internal controls should address the weaknesses cited in this report.
We recommend the Assistant Secretary for Public and Indian Housing
1D. Take appropriate administrative sanctions, up to and including
issuing a notice of default in accordance with section 15 of the
annual contributions contract for the Rental Certificate and Rental
Voucher programs.
17
SCOPE AND METHODOLOGY
Our objective was to determine whether the Authority had the necessary financial
controls in place to operate its voucher program in an efficient, effective, and economical
manner. To accomplish our objective, we
• Reviewed relevant criteria;
• Interviewed HUD and Authority management and staff regarding the Authority’s
financial operations;
• Interviewed KPMG personnel and reviewed KPMG working papers;
• Analyzed and evaluated the Authority’s bank records, general ledger, financial
statements, and budgets;
• Reviewed relevant Authority personnel files;
• Reviewed financial data from HUD’s Voucher Management System;
• Reviewed financial statements from HUD’s Financial Accounting and
Assessment System; and
• Reviewed HUD monitoring reports.
We conducted the audit in accordance with generally accepted government auditing
standards. Our audit generally covered the period January 2005 through December 2006.
We expanded the review period as necessary to accomplish our objective. We performed
audit fieldwork at the Authority’s administrative offices in Dallas, Texas, from July 2007
through January 2008.
18
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS AND
FUNDS TO BE PUT TO BETTER USE
Recommendation Unsupported 1/ Funds to be Put to
Number Better Use 2/
1A $32,440,786
1B $648,530
1/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured
program or activity when we cannot determine eligibility at the time of audit.
Unsupported costs require a decision by HUD program officials. This decision, in
addition to obtaining supporting documentation, might involve a legal interpretation
or clarification of departmental policies and procedures.
2/ Recommendations that funds be put to better use are estimates of amounts that could
be used more efficiently if an OIG recommendation is implemented. This includes
reductions in outlays, deobligation of funds, withdrawal of interest subsidy costs not
incurred by implementing recommended improvements, avoidance of unnecessary
expenditures noted in preaward reviews, and any other savings which are specifically
identified. In this instance, the amount represents funds that the Authority needs to
remit to the rightful owner or reprogram in accordance with generally accepted
accounting principles and HUD requirements.
19
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
20
Comment 1
21
Comment 1
Comment 2
22
Comment 3
Comment 1
Comment 4
23
Comment 5
Comment 6
Comment 7
Comment 6
24
Comment 1
Comment 8
25
Comment 1
26
OIG Evaluation of Auditee Comments
Comment 1 The Authority acknowledged that they did not have sufficient policies and
procedures during the audit period. The Authority asserts that it has or
will implement improved procedures to correct deficiencies. Our audit did
not evaluate changes implemented subsequent to our audit period. The
Authority should work with HUD to implement the recommendations.
Comment 2 The Authority’s response referenced an adjusted trial balance provided at
the exit conference. However, the document provided did not reflect the
relationship between the year-end balances in the general ledger and the
financial statements. For example, the general ledger reflected an ending
cash balance of ($653,488) for 2005; whereas, the document provided by
the Authority for the same period reflects a cash balance of $65,371. The
Authority did not provide documentation to reconcile the general ledger to
the adjusted trial balance provided at the exit conference.
Comment 3 We modified the report to reflect additional information provided at the
exit conference. While the Authority did provide additional information
detailing the administrative revenues and expenses, it did not provide an
explanation of the causes and actions taken to correct the 37 percent
increase in administrative expenses between 2005 and 2006. During the
exit conference, Authority officials stated that the budgets, along with any
overages, were provided to the board on a periodic basis and provided
recordings as evidence. The recordings contained the initial adoption of
the 2006 housing choice voucher program. However, the recordings did
not have discussions of the expenses or variances. The Authority should
followup on variances on its budget to actual reports.
Comment 4 The Authority asserts it has taken actions of voiding and properly
classifying outstanding checks, reducing accounts, and limiting the
creation of new accounts. These actions should have positive impact on
the management and operation of the Authority. The Authority will need
to submit evidence of implementation to HUD for verification.
Comment 5 The Authority should continue to modernize its accounting system and
accounts to ensure compliance with requirements and standards.
Comment 6 The Authority’s response did not adequately address what caused the
improperly recorded checks cited in the report. While the Authority
explained how it solved a problem with its check printer, the checks cited
in the report were not caused by this check printer error, and the Authority
did not provide a plausible explanation for how this occurred.
27
Comment 7 The Authority’s statement to require future landlords to utilize direct
deposit can improve the management and efficiency of its operations. We
would encourage the Authority to require existing landlords to utilize
direct deposit to further reduce the use of paper checks.
Comment 8 We did not change the amounts in the report table or conclusions formed.
We did modify the section as needed to further clarify. The Authority
provided some evidence in its response that it is currently segregating the
net assets of its housing choice voucher. However, we did not audit the
details of the evidence as they were outside our audit period. The
Authority must comply with HUD requirements including Notice 2006-
03. Specifically, the Authority must be able to differentiate housing
assistance payment equity (budget authority in excess of housing
assistance payment expenses) from Administrative Fee equity
(Administrative Fees earned in excess of administrative costs). The
Authority must work with HUD to ensure it enters accurate, reliable data
into VMS in a timely manner. Additionally, the Authority’s calculation of
its undesignated fund balance did not include an opening balance, prior to
January 1, 2005, or subsequent to December 31, 2006.
28
Dallas Housing Authority, Dallas, Texas, Management Failed to Implement Internal Controls over Its Housing Choice Voucher Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-03-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)